Global housing price downturn fades, most markets to rise in 2024

BENGALURU - The recent downturn in global property prices is mostly over, with average home prices in major markets now expected to fall less than was anticipated at the start of 2023, and rise into 2024, according to a Reuters poll of property analysts.

Double-digit price falls that the analysts forecast earlier in 2023 due to rising mortgage rates have not materialised in full as higher household savings, tight supply and rising immigration limited declines.

Sharply higher mortgage rates, as a result of more than a year of interest rate rises by key central banks, have not affected everyone, either.

Many home owners who locked in cheap mortgages during a long period of near-zero rates, particularly in the United States, have decided to stay put.

That has restricted supply and housing market activity.

However, that is more bad news for aspiring first-time home buyers left on the sidelines for years by tight supply and priced out during the Covid-19 pandemic when existing home owners outbid them, pushing up house prices at double-digit annual rates.

The latest poll results – particularly for economies with the fastest house price inflation in recent years such as the US, Canada, New Zealand and Australia – challenge the assumption that the next move from most central banks will be to cut rates.

Indeed, much of the optimism around the unexpected early stabilisation in these markets has stemmed from speculation that interest rates have topped out and that as soon as the first half of 2024, they will be coming down again.

“Probably over the last two months, there has been a little bit too much positive thinking around the impact of a peak rates scenario. I think we haven’t really felt the full impact yet of higher rates.

“Fixed-rate mortgages have meant many owners of property are being kind of shielded from the impacts,” said Mr Liam Bailey, head of research at Knight Frank.

“I think the reality is you’ve got very low supply and house building volumes in most markets because of Covid-19 disruption and supply chain disruption… You’ve also got quite strong demand in most Western markets. The fundamental point is strong demand meets weak supply.”

That was already a serious challenge across global housing markets before the pandemic, which only a few markets like India missed.

The Aug 14 to 31 Reuters poll of more than 130 housing analysts covering property markets in the US, Britain, Germany, Australia, New Zealand and India showed analysts broadly upgrading their forecasts for 2023 and 2024.

China is a notable exception to the optimism.

Average US house prices were forecast to stagnate in 2023 and 2024.

In the May and March polls, 2023 values were forecast to fall 2.8 per cent and 4.5 per cent, respectively.

New Zealand and Canadian home prices, which soared 40 per cent to 50 per cent during the pandemic, were predicted to fall around 5 per cent in 2023 and then rise about 5 per cent and 2 per cent, respectively, in 2024.

Those were upgrades from the 8 per cent to 9 per cent drop expected in 2023, and a 2 per cent to 3.4 per cent rise in 2024, in the last poll.

In India, which did not have a pandemic boom, home prices are set to rise steadily over the coming years.

Average prices in the German housing market were forecast to fall 5.6 per cent in 2023 and flatline in 2024.

Home prices in Britain will drift down a modest 4 per cent in 2023 with no growth in 2024, according to the poll.

Affordability is set to remain a problem globally.

Overall, a majority of respondents, 55 of 103, who answered a separate question said purchasing affordability for first-time home buyers would worsen over the coming year.

The remaining 48 said it would improve.

“Mortgage rates have continued to rise, and that is putting increased pressure on affordability. Sales volume is low, which obscures exactly how bad the pressure is on home prices,” said Mr Brad Hunter of Hunter Housing Economics.

However, with demand for housing outstripping supply, average rents were expected to rise and rental affordability to worsen.

A near two-thirds majority of analysts, 65 of 101, who answered an additional question said rental affordability would worsen over the coming year. The remaining 36 said it would improve. REUTERS